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Finance > Module 4 revision cards - part 2 > Flashcards

Module 4 revision cards - part 2 Flashcards

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1
Q

What is management accounting

A

The sourcing and analysis of financial and non-financial information for a business’s management to help them run the business effectively and efficiently

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2
Q

What is a management accounting system

A

A system or process which collects internal data from business operations such as sales, inventory, raw materials and then analyses the info to produce reports for management

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3
Q

What to consider when choosing a man account system

A

One that integrates with the business’s financial accounting system to increase the timeliness of management reports and eliminate redundant work or duplication

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4
Q

Difference between financial and management accounting

A

Financial
1 Primarily used by external stakeholders
2 Info is based on historic data (look backwards)
3 Reports using accounting standards

Management
1 Used by internal stakeholders
2 Info to analyse trends and statistics to inform future strategy (i.e. ‘looking forwards’)
3 More complete reporting with no rules and legislation around how to prepare it

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5
Q

How should man accounts be reported/formatted

A

Accurate
Understandable
Comparable
Timely/up to date

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6
Q

What is the main type of accounting system and what is its purpose

A

Cost accounting system

Looks at all of a businesses expenses to determine the fixed and variable costs associated with making the product

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7
Q

What are different types of cost accounting method

A

Standard costing
Normal costing
Actual costing
Activity based costing (ABC)
Life cycle costing
Target costing

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8
Q

Explain how each type of cost accounting method is calculated

A

Standard - using PREDETERMINED/STANDARDISED expected costs (“standards”) for both direct AND indirect costs to estimate the total cost of production of an item or output

Normal - using ACTUAL DRIECT direct costs and PREDETERMINED indirect costs

Actual - using ACTUAL direct AND indirect costs

Activity based - overheads/indirect costs apportioned/ allocated more of the total overhead depending on volume of product

Life cycle - cost accumulated over the entire products life. From R&D all the way through to discontinued

Target - goals are preset. The business plans target price point, product cost and margins in advance but cancels the project if these cant be attained or maintained

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9
Q

In what 2 ways does man accounting evaluate and analyse performance

A

Key performance indicators (KPIs)
Balanced score cards

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10
Q

What is a KPI

A

Values that can be used to evaluate how successful something has been in meeting performance or objectives

Often measured against 1 of 4 types of benchmark

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11
Q

What are the 4 types of benchmark

A

Internal
Functional
Generic
Competitive

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12
Q

What does each of the 4 benchmarks compare

A

GENERAL INTERNAL COMPETITION ACHIEVES BEST IN CLASS

Internal - against other units or areas within the business

Functional - compare internal functions against the best in class external practitioners

Generic - compares a process to a conceptually similar process in another/unrelated business or industry

Competitive - compares against a direct competitor

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13
Q

What is a balanced score card and what areas of measurement does it cover

A

FINANCIAL CUSTOMERS LEARN AND GROW THROUGH INTERNAL BUSINESS

Analyses 4 areas to help monitor and develop KPIs - FLIC

Financial - performance and how it looks to its shareholders

Learning & growth - where it can continue to grow and create value

Internal business - evaluating processes, bottlenecks, waste, delays, as well as evaluating what the business excels at

Customer - how it is perceived by its clients

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14
Q

Ways in which a business can plan and forecast

A

Cost allocation
Financial modelling
Weighted average cost of capital
Scenario planning
Business valuation of projects (discounted cash flow, net present value)

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15
Q

What is cost allocation

A

Where a business identifies and assigns INDIRECT costs to a cost object (something the business wants to separately measure costs for)

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16
Q

What is cost tracing

A

Where a business identifies and assigns DIRECT costs are allocated to cost objects

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17
Q

What is financial modelling

A

Examine how different economic situations or events would affect the business

Putting different variables into a mathematical equation/formulae to see the impact it has on the business

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18
Q

What is weighted average cost of capital

A

The minimum return to satisfy its creditors, owners and other providers of capital (expressed as a %)

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19
Q

What are the 2 main sources of business funds

A

Equity financing
Debt financing

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20
Q

What is equity financing

A

The capital raised by selling shares

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21
Q

What is debt financing

A

The capital raised from bank loans or issuing bonds

22
Q

What is the cost of equity

A

The rate of return the company pays to its equity investors (dividends)

23
Q

What is the cost of debt

A

The interest rate on loans or the coupon rate on the company’s bonds

24
Q

What are shares and bonds collectively known as

A

Securities

25
Q

What is scenario planning

A

Management considers a range of possibilities for what may happen in the future so they can be prepared should one of those possibilities occur.

26
Q

What is business valuation

A

Determines how attractive an investment is by looking at present values, found by working backwards from an investment project’s future amount to see how much that would equate to today

Assessed using discounted cashflows and net present values.

27
Q

What does NPV stand for

A

Net present value

28
Q

What is variance analysis

A

Compares the differences/variances between what was budgeted for and what the actual value turned out to be

29
Q

List some types of variance that might be analysed

A

Sales volume variance
Sales price variance
Direct material price variance
Direct material usage variance
Fixed/variable overhead variances

30
Q

What is forecasting

A

Allows a business to plan and make decisions to ensure future profitability and cashflow

31
Q

What are the types of forecasting/planning management use

A

Cash flow forecasting - predicting the amount of £ in and out of the business

Demand forecasting - estimates customer demand through historical data, trends & market research

Break even analysis

32
Q

What is break even analysis

A

The point at which a businesses revenues are equal to its total costs

A margin of safety is then calculated to assess riskiness and provide planning

33
Q

What are the considerations of management decisions

A

AN INVESTMENT IN FINANCING PAYS DIVIDENDS FOR WORKING CAPITAL

Investment decision - investments the business should make

Financing decision - any long-term financing the business needs to raise

Dividend decision - how profits should be distributed to shareholders

Working capital management - short-term financing

34
Q

Main management objectives

A

Maximising shareholder wealth

Reinvesting in the company

Non financial objectives

35
Q

What is cost–volume–profit (CVP) analysis

A

Examines how total revenues, total costs and operating profit changes as the following variables change

1 level of output
2 selling price
3 variable costs
4 fixed costs

36
Q

What is contribution

A

What is left over when subtracting all variable/direct costs from revenue

(not necessarily calculated per unit)

37
Q

What is contribution margin

A

What’s left over when subtracting the variable cost of a unit from a unit’s price

38
Q

What is the purpose of the contribution and the contribution margin calcs

A

Can be used to help make decisions around pricing, budgets and capital expenditure

39
Q

Assumptions of CVP (cost-value-profit)

A

All costs can be accurately identified as either fixed or variable

The selling price per unit is constant

All units produced are sold

Changes in activity are the only factors that affect costs

40
Q

Advantages of CVP (cost-value-profit)

A

Reasonably simple and provides a detailed snapshot of activity within the business

Can be used to make decisions on pricing, profit forecasts, cost-reduction decisions and even capital spending

41
Q

Limitations of CVP (cost-value-profit)

A

Can only provide approximate answers

It must be carried out for each specific product, service or business segment, especially where pricing or costs involved are different

42
Q

What is integrated reporting (IR)

A

A periodic report from the organisation that should consist of:

  1. financial information
  2. governance and remuneration
  3. sustainability information
  4. management commentary
43
Q

What detail should be contained in an Integrated Report

A

Value creation - a better goal for companies and their long-term survivability and reputation, than simply meeting financial metrics of performance

Corporate governance - the practice under which a company is directed and controlled

Sustainability - the ability of a business to continue indefinitely while focusing on meeting the needs of the present without compromising the ability of future generations to meet their needs
Broken down into three different types:
Profit - economic
Planet - environmental
People - social

44
Q

Benefits of Integrated Reporting

A

Draws on more than financial info

Aims to encourage business leaders to think in a way that recognises the business’s interconnectivity, and how its non-financial impacts are linked to its financial impacts.

Integrated thinking leads to integrated decision-making and actions that consider the creation, preservation or erosion of value over the short, medium and long term

45
Q

Aims of Integrated Reporting

A

Aims to illustrate and improve the quality of information available on non financial impacts to its businesses stakeholders

Promote a more cohesive and efficient approach to corporate reporting, communicating the full range of factors that materially affect an organisation to create value

Enhance accountability and stewardship

Support integrated thinking, decision making and actions that focus on the creation of value over the short, medium and long term

46
Q

What is the impact of only considering financials in management decisions

A

Doesn’t see the full/whole picture or take into account the environment or society (Corporate social responsibility (CSR) )

47
Q

What is cost-benefit analysis

A

Cost comparisons for analysing

48
Q

Disadvantages of breakeven analysis

A

Assumes costs move in a linear way

Not all costs can be classed as fixed or variable

Can only be used for a single product at a time

Ignores any transfer to/from held stock

49
Q

What is an absorption cost

A

The cost of all the resources used to produce an item of output or activity. Both fixed and variable costs are taken into account

50
Q

What is an operating statement

A

A statement reconciling 2 figures via variances. A type of management accounting financial statement

Finance (2 decks)

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